Preserve the charitable tax deduction

Reducing the incentive to give is exactly the wrong strategy to pursue

By Richard Ober

Published: January 11, 2013

From one cold and highly organized warehouse in Manchester, the New Hampshire Food Bank distributes a dependable supply of nutritious food through more than 400 food pantries from Keene to Pittsburg to Portsmouth, totaling almost 8 million pounds and feeding more than 143,000 people a year.

The work the Food Bank accomplishes is top of mind right now because the recent holiday season underscores the reality of hunger in our communities. And because a national conversation about possible remedies to address the so-called fiscal cliff originally included capping or limiting the deduction provided for charitable giving – or even eliminating the deduction altogether. Despite the short-term partial resolution passed by Congress on New Year’s Day, tax reform is still on the table.

This creates an opportunity to raise awareness of just how important this “tax break” is, because there is one other essential fact about the Food Bank that we should all be aware of: Fully 98 percent of the revenue that supports its operation comes from charitable donations.

Reducing the incentive to give is exactly the wrong strategy to pursue. It weakens the network of organizations that hold our communities together.

As national experts have pointed out, it doesn’t even make economic sense. When a resident makes a gift of $1,000, the government loses tax revenue of about $350, but the community receives the full benefit of that $1,000. Few other strategies can leverage private spending for public service to that extent.

Residents of New Hampshire are charitable: In 2010, over half a billion dollars was donated by 180,000 households in the state. This provides a critical resource for a wide range of organizations.

It contributes to higher education, arts and cultural institutions, and organizations that protect the environment and help preserve farms and forests. It undergirds churches and mental health centers, pays for care for veterans and the elderly, provides mental health services, and supports youth sports.

There would be immediate negative consequences of reducing or eliminating the charitable tax deduction. Think about how it would lower the ability of the Food Bank to feed those in need. And that is just the beginning.

The nonprofit sector in New Hampshire employs more than 85,000 people, 14.3 percent of the workforce, and it generates more than $9 billion in annual revenue.

Fully 30 percent of Americans queried said they would reduce their giving if tax incentives were removed, and 62 percent of those said they would reduce giving by “a significant amount.”

Charitable giving has already been reduced due to the economic crisis that began in 2008. Giving declined nationally by 14 percent in 2008, and by 8 percent in 2009.

As resources have shrunk, the organizations we all depend on have typically worked hard to cut costs and increase efficiency. That has enabled them to continue to address needs, which have increased because of weakness in the economy and cuts in spending.

Every day, at the New Hampshire Charitable Foundation -- the state’s largest nongovernmental grant-maker – we see how important it is to support the nonprofit sector. We have reached out to the state’s congressional delegation, urging them to reject proposals to limit or end deductions for charitable donations, and we invite others to speak up.

Charitable giving is a deeply rooted New Hampshire tradition, and we need to continue to support it.

Richard Ober is president and CEO of the New Hampshire Charitable Foundation.

This article appears in the January 11 2013 issue of New Hampshire Business Review